Southwest Gas Corporation (SWX): Are Hedge Funds Right About This Stock?

Is it smart to be bullish on Southwest Gas Corporation (NYSE:SWX)?

Now, according to many of your peers, hedge funds are assumed to be overrated, outdated financial vehicles of a forgotten age. Although there are more than 8,000 hedge funds with their doors open currently, this site focuses on the aristocrats of this club, close to 525 funds. Analysts calculate that this group controls the majority of the smart money’s total capital, and by paying attention to their highest quality picks, we’ve unsheathed a few investment strategies that have historically outstripped Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 33 percentage points in 11 months (see all of our picks from August).

Equally as crucial, optimistic insider trading activity is another way to analyze the financial markets. As the old adage goes: there are plenty of reasons for an upper level exec to cut shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Various empirical studies have demonstrated the market-beating potential of this tactic if “monkeys” know where to look (learn more here).

Furthermore, we’re going to study the recent info about Southwest Gas Corporation (NYSE:SWX).

What have hedge funds been doing with Southwest Gas Corporation (NYSE:SWX)?

Heading into Q3, a total of 14 of the hedge funds we track were bullish in this stock, a change of -13% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly.

When using filings from the hedgies we track, GAMCO Investors, managed by Mario Gabelli, holds the largest position in Southwest Gas Corporation (NYSE:SWX). GAMCO Investors has a $68.4 million position in the stock, comprising 0.4% of its 13F portfolio. On GAMCO Investors’s heels is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which held a $43.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedgies with similar optimism include Jim Simons’s Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Thomas M. Fitzgerald’s Longbow Capital Partners.

Due to the fact Southwest Gas Corporation (NYSE:SWX) has experienced a fall in interest from upper-tier hedge fund managers, it’s safe to say that there were a few hedge funds who sold off their full holdings heading into Q2. Intriguingly, Glenn Russell Dubin’s Highbridge Capital Management dumped the biggest position of the 450+ funds we monitor, comprising close to $1.6 million in stock, and Mike Vranos of Ellington was right behind this move, as the fund cut about $0.7 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds heading into Q2.

How have insiders been trading Southwest Gas Corporation (NYSE:SWX)?

Insider buying made by high-level executives is best served when the company in focus has seen transactions within the past six months. Over the last 180-day time frame, Southwest Gas Corporation (NYSE:SWX) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll go over the relationship between both of these indicators in other stocks similar to Southwest Gas Corporation (NYSE:SWX). These stocks are New Jersey Resources Corp (NYSE:NJR), Suburban Propane Partners LP (NYSE:SPH), Piedmont Natural Gas Company, Inc. (NYSE:PNY), WGL Holdings Inc (NYSE:WGL), and Atlas Energy LP (NYSE:ATLS). This group of stocks are in the gas utilities industry and their market caps are closest to SWX’s market cap.

Using the returns explained by our strategies, regular investors must always keep one eye on hedge fund and insider trading sentiment, and Southwest Gas Corporation (NYSE:SWX) applies perfectly to this mantra.

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